Mike Kueber's Blog

September 25, 2011

Redshirting my kindergarten-aged kid?

Filed under: Culture,Education,Sports — Mike Kueber @ 7:26 pm
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Yesterday, there was a column in the NY Times arguing that it was not a good idea delay your kid’s entrance into kindergarten.  This delaying practice is sometimes called redshirting because it is analogous to a practice in college football that allows college kids to mature an addition year before beginning four years of competitive college football.

Although I hadn’t heard of this practice when my four boys entered kindergarten, my youngest son Jimmy tells me that one of his best friends started a year behind Jimmy even though Jimmy was younger.  And according to Jimmy, the delayed start was intended by his friend’s dad, who had been a professional baseball player, to improve his friend’s athletic prospects.  (It worked; his son has received a Division I scholarship.)

You may think this sort of parental behavior is irrational, but that would be wrong.  One of my first blog postings was a review of a classic book titled Outliers by Malcolm Gladwell.  In Outliers Gladwell described compelling evidence that kids who are grouped with kids a few months younger than themselves are unbelievably more successful in sports.  If a few months make a big difference, imagine how much difference there is when a kid is delayed more than 12 months?

The NY Times column was authored by scientists, but it was obvious that the authors were social advocates, not disinterested scientists.  Also the column focused on the academic advantage to starting kindergarten as soon as possible.  It didn’t study the athletic advantage of starting early, but seemed to concede it.

You may wonder when kids can start kindergarten.  The law varies in every state.  According to one internet website, kindergarten is for 5-year olds, and the cut-off date for turning 5 is usually August 31 or September 1.  The earliest is August 1 (Missouri) and the latest is December 31 (several states).

The cut-off in my home state of Texas is September 1, and my former home state of North Dakota is December 2.  If I had grown up in Texas, I would have started school one year later because my birthday is September 24.

But this information establishes the earliest date to begin kindergarten.  What are the parents’ rights to delay kindergarten?  Again, the laws in each state are different.  In Texas, the mandatory school-attendance law applies to any kid who is six-years old by September 1.  Only seven states require school attendance at age 5, which means that redshirting would be an option in the others.  Twenty-three require it at age 6, while 17 states, including North Dakota, require it at age 7.

So what’s a parent to do?  As my brother Kelly said, most parents have no idea whether their kid is going to be blessed with great athletic ability.  Unless you have huge athletic aspirations for your child, redshirting will receive a “delay of game” penalty.

August 5, 2011

Aphorism of the Week #6 – “The squeaky wheel gets the grease”

Filed under: Aphorism — Mike Kueber @ 4:13 am
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They say that Google has enabled us to locate any information that we desire.  But my Google research skills must be lacking because I have been unable find three of my favorite aphorisms.  Therefore, I will have to paraphrase them:

  1. Some famous Texas historian (Dobie? Webb? Bedichek?) said about a cowboy, “He who has struggled on the trail to preserve his water is unlikely at the end of the trail to waste it away.”
  2. President Lyndon Johnson conducted a large meeting in his western White House and later
    complained about participants on the fringe of the meeting who didn’t dare speak up, but were not hesitant later to second-guess.  (Sort of a Texas version of Roosevelt’s “In the Arena.”)
  3. President Bush-41 told about being a small kid coming home from school and having his mother ask him if he had imposed on his teacher’s time, to the detriment of other kids.

I find the Bush-41 story especially fascinating because it reminds me of this week’s aphorism – “The squeaky wheel gets the grease.”  I am fascinated by that aphorism because it has multiple levels.

On the simplest level, it is the admonition to quit whining and acting like a spoiled kid.  That is what I was told as a kid.  But the Bush-41 story takes it to another, more altruistic level.  His mother was teaching him to be empathetic and consider how his demands affect others.

I think, however, there is even a third level to the aphorism.  Last year, I read a book by Malcolm Gladwell titled, Outliers, and in my blog review of the book, I noted the following:

  • In my opinion, Chapter Four is the most significant.  It describes practical intelligence, as distinguished from IQ.  “Practical intelligence includes things like ‘knowing what to say to whom, knowing when to say it, and knowing how to say it for maximum effect.’  It is procedural….  It’s practical in nature: that is, it’s not knowledge for its own sake.”  Where does practical intelligence come from – unlike analytical intelligence, which comes at least in part from your genes, practical intelligence seems to come from your families.  “When we talk of the advantages of class,” we are not talking only of money and schooling, “but also because – and perhaps this is even more critical, the sense of entitlement that he has been taught is an attitude perfectly suiting to succeeding in the modern world.”  The term that I have used in the past, “The squeaky wheel gets the grease.”  In contrast, individuals from lower classes offer little resistance to 2nd-class treatment and are typically easily discouraged.

With my background in the corporate world, I commonly observed this third level of entitlement.  Employees of mediocre ability, but aristocratic background, often acted like they were entitled to advance, and too often their expectations were met.  Of course, many of the supervisors were like them – i.e., mediocre aristocrats.

It’s too bad that management courses don’t describe this tendency.  If managers were aware of it, perhaps they would be able minimize it.

October 26, 2010

The Big Short, by Michael Lewis – a book review

In his landmark book, Outliers, Malcolm Gladwell suggested that the rice-growing tradition in Asia (satisfying, meaningful work) resulted in hard-working kids with practical intelligence.  I have previously suggested that the farming tradition in America similarly provided the foundation for America’s Greatest Generation – the most productive in its history.  After reading Michael Lewis’ The Big Short – Inside the Doomsday Machine, I feel sick about how far the American way of life has deviated from rewarding productivity. 

The Big Short describes the financial crisis of 2007-2008 from the perspective of several Wall Street types who saw it coming and did the what Wall Street types do – i.e., they profited from it.  How do you profit from disasters – you sell “short.” 

According to Wikipedia:

  • “Short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as the seller will pay less to buy the assets than the seller received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises.”

Thus, while the background for The Big Short is the scandalous market for sub-prime mortgages in 2005-2007, the actual story is about several people who were smart enough to bet/gamble millions of dollars that the sub-prime market would fail and who won billions in return.   

Sub-prime mortgages are mortgages to borrowers whose ability to repay the loan is suspect.  Why would anybody want a sub-prime mortgage? 

From a borrower’s perspective, this type of loan (often with a 2-year teaser interest rate that adjusts higher) makes sense because the expected rise in the value of the home can be used to finance subsequent payment obligations.  As they say, nothing ventured, nothing gained.  Especially when you have nothing to lose (little or no down payment). 

From the lender’s perspective, this type of loan (often with no documentation of income – “no doc” mortgages) makes sense if the risk of default can be shifted to someone else. 

The process worked fine while the easy credit from the Fed caused the value of houses to rise ever more steeply.  People profited from buying more house than they could afford, and many started buying additional houses as an investment.  But inevitably, the housing bubble burst, home values fell, and the people with the sub-prime mortgages defaulted. 

Who was left holding the bag of defaulted mortgages?  The secondary mortgage industry was left holding the bag. 

A big part of the secondary-mortgage industry is the federal government, through GSEs Fannie Mae and Freddie Mac (government-sponsored entities).  Although The Big Short doesn’t spend much time detailing the role of the federal government in creating the real-estate bubble (by pressuring the GSEs to guarantee loans to low- and moderate-income people), it is well documented elsewhere (a) that politicians in 2005 had decided that increasing home ownership would improve America and (b) that politicians now agree that home ownership should not be given to people before they prove themselves to be financially responsible.

But big investment banks wanted a big piece of the secondary mortgage market, too, and they can’t blame their stupid actions on political pressures.  Rather, they thought they could make big money.  The banks’ strategy was to create what the author called a Doomsday Machine to package thousands of sub-prime mortgages that didn’t qualify for a GSE guarantee into bonds, derivatives, and CDOs (collateralized debt obligations) that were so confusing (mezzanine tranches) that outgunned and conflicted rating agencies (Moody’s and S&P) would give them a AAA rating without understanding the junk beneath them.  Conservative investors were willing to buy the AAA securities, especially when they could buy cheap insurance against default (credit default swaps) from mega-insurer AIG and other gullible investors who didn’t realize there was junk beneath the AAA rating.  Only when the underlying sub-prime mortgages started defaulting did the chickens come home to roost.       

The ostensible heroes in The Big Short recognized that the mortgages would inevitably fail and that the investors left holding the bag would fail.  Although there was already a technique for betting against the institutions left holding the bag (selling their stock short), the heroes had to create a market for selling short the CDOs.  Much of The Big Short involves the creation of that shorting niche, and although it makes an interesting story, I question its significance other than to provide another example of unproductive activity.

All of which brings me back to my initial concern with rewarding unproductive activity in America.  Much has been written about Wall Street taking the best & the brightest kids from the Ivy League schools and directing their energy and intelligence to essentially unproductive activity.  Shorting (like day-trading, arbitrage, and gambling) seems like an especially unproductive activity, even though Seth Klarman has argued that shorting provides a useful counterweight to the widespread bullishness on Wall Street, and my personal guru Warren Buffett says short sellers are useful in uncovering fraudulent accounting and other malfeasance at companies.  In my opinion, capitalism is riddled with similar inefficiencies, but interference with the market is usually counter-productive.      

The author of The Big Short, Michael Lewis, has been around the block before.  He first gained fame in 1989 by writing Liar’s Poker, a popular book about the lifestyle of mortgage brokers and the creation of mortgage bonds by his employer, Solomon Brothers.  He has written several other books, including two sports books – Moneyball, a 2003 book about the use of statistics (sabermetrics) in making baseball decisions, and Blind Side, a 2006 book that served as the basis for award-winning football movie.

September 14, 2010

Social mobility

A column by David Brooks in today’s NYTimes suggested that the sales pitch by the Republican Party to American voters may be effective in the short-term, but it is not a message that will result in a long-term governing coalition:

Through most of its history, the narrative begins, the United States was a limited government nation, with restrained central power and an independent citizenry. But over the years, forces have arisen that seek to change America’s essential nature. These forces would replace America’s traditional free enterprise system with a European-style cradle-to-grave social democracy. 

These statist forces are more powerful than ever in the age of Obama. So it is the duty for those who believe in the traditional American system to stand up and defend the Constitution. There is no middle ground. Every small new government program puts us on the slippery slope toward a smothering nanny state. 

Contrary to this Republican sales pitch, Brooks opines that a governing coalition must include those voters who want government to play a positive role.  This role is necessary because some problems can’t be solved by the government simply getting out of the way:

The fact is, the American story is not just the story of limited governments; it is the story of limited but energetic governments that used aggressive federal power to promote growth and social mobility.

Brooks’ use of the term “social mobility” intrigued me.  During my congressional campaign, I argued that government should work toward equal opportunity for all (but not equal results), and I wondered if “social mobility” is a more eloquent way of saying the same thing.

As usual, Wikipedia is a good starting point:

In sociology and economics, as well as in common political discourse, social mobility refers to the degree to which an individual or group’s status is able to change in terms of position in the social hierarchy.  To this extent it most commonly refers to material wealth and the ability of a person to move up the class system….  The extent to which a nation is open and meritocratic is of fundamental significance. 

Social mobility; meritocratic; equal opportunity – these are American values.  But as I further explored the concept of social mobility, I was disappointed to find that the United States was not a leader.  A recent study by the Organisation for Economic Co-operation and Development on inter-generational social mobility found:

10/02/2010 – It is easier to climb the social ladder and earn more than one’s parents in the Nordic countries, Australia and Canada than in France, Italy, Britain and the United States, according to a new OECD study. “Intergenerational Social Mobility: a family affair?” says weak social mobility can signal a lack of equal opportunities, constrain productivity and curb economic growth. 

A report generated from the OECD study opined that social mobility enhances economic growth by allocating human resources to their best use:

Removing policy-related obstacles to social mobility can be advocated on equity grounds as it should improve equality of economic opportunities, but also on efficiency grounds. The economic rationale for removing such obstacles is two-fold. First, less mobile societies are more likely to waste or misallocate human skills and talents. Second, lack of equal opportunity may affect the motivation, effort and, ultimately, the productivity of citizens, with adverse effects on the overall efficiency and the growth potential of the economy.

Although the report did not focus on policy options that would enhance mobility, it did assert that education was the key, and it concluded with the following advice:

Policies that facilitate access to education of individuals from disadvantaged family backgrounds promote intergenerational wage mobility, and are also likely to be good for economic growth. Examples include inter alia school practices that start grouping or “tracking” students only late in their educational curricula so as to encourage the social mix within schools, or government-supported loan or grant systems that reduce students’ dependence on their families for financing their post-secondary studies.  [Malcolm Gladwell also discussed the pernicious effect of early grouping/tracking in his book Outliers.] 

Class warfare is a common tactic in American politics, especially when dealing with taxation.  And there are never-ending recriminations about the shrinking middle class.  But these are zero-sum arguments that revolve around whether the government should be redistributing income.  As suggested by the OECD report, increasing social mobility would increase the size of the pie/pot to be divided and simultaneously increase equity.  That’s a win-win.

The NYTimes has produced an interesting chart that shows the intra-generational social mobility in America late in the 1990s.   The OECD study and report concerned inter-generational social mobility.  Both are worthwhile objectives, but inter-generational mobility is essential.